AIG's Robert Discolo Talks Hedge Fund Talent

TSC: What strategies do you like?

RD: Event-driven strategies, energy strategies have been working for us. We've outperformed in distressed. Long/short has been very good for us too. We're investing in activism. Activism falls between private equity and hedge fund and it's offering higher returns. But activism is very risky because you have concentrated positions and it's long-only, so you don't have much downside protection. We're testing it right now: a lot of our managers do it as part of their overall investment strategy. But as a pure activist, you can easily get burned.

TSC: What makes you nervous?

RD: We look across our managers and see cross-holdings. A lot of managers do the same thing. For example, in special situations in Europe, a lot of people are in the same names. In October, we saw a quick selloff as some people got nervous. I am not that worried because our managers have the best analysis. But when the other managers start selling all at the same time, the liquidity dries up, the stock drops and you're going to get squeezed a bit when your positions are marked to market.

TSC: You are bullish on Asia. Talk to us about it.

RD: Yes, we are in Asia. Asia is the next hot place as there are many inefficiencies there and it's less crowded than the U.S. or Europe and you can do more things. A few years ago, shorting was impossible in Korea; now it's possible. But it's expensive to be there. There are infrastructure costs. You need to speak the language. The best talents don't speak English there. You also need to travel. You've got to have the relationships. And with our offices in Tokyo, Hong Kong, Singapore, India, China and throughout Asia, we are well-positioned to tap into this market. We like Asian long/short stocks. There will be tons of winners and losers over there and money can be made because of this inefficiency. For example, a stock in the U.S. may have 30 analysts following it and a P/E of 25. In Asia, a similar stock will have five analysts and a 10 P/E. I'm in Asia every two months and we are building a strong hedge fund infrastructure there.

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